Question
Maria, Inc. has a total balance in Accounts Receivable at the end of the current month of $53,000. Based on an analysis of the details
Maria, Inc. has a total balance in Accounts Receivable at the end of the current month of $53,000.
Based on an analysis of the details of what Marias customers owe and their creditworthiness, K. Farrell, Marias CFO, estimates that $6,000 of the recorded Accounts Receivable will likely not be able to be collected from customers.
Maria already has a balance of $3,000 in the Allowance for Uncollectible Accounts account at the start of the current month.
Required:
A Provide the journal entry needed to account for the facts above regarding the uncertainty about collecting all of the Accounts Receivable.
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B Some time later, after making the entry above, K. Farrell finds out that Ivan , one of Marias customers, has gone bankrupt and has notified Maria that they will not be able to pay their balance of $1,000. Provide the journal entry that K. Farrell would have to make to reflect this news.
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C After these two adjusting entries, what will Maria display related to Accounts Receivable in the assets section of their balance sheet?
D What is the effect on net income of the entry made in part (A)? Briefly explain.
E What is the effect on net income of the entry made in part (B)? Briefly explain.
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